Northwestern Healthcare Merger Ruled “Anti-Competitive” by the FTC

In a case that could have national consequences for healthcare providers, Evanston Northwestern Healthcare dodged a bullet on Thursday as the Federal Trade Commission ruled that ENH violated trust laws but would not have to sell its Highland Park Hospital.

The unanimous 5 to 0 decision by the FTC found ENH broke the anti-trust Clayton Act when it acquired Highland Park Hospital in January 2000 and raised cost-of-care rates. Yet the ruling overturned a 2005 order for ENH to divest the Highland Park Hospital. The FTC compromised the previous ruling by requiring ENH to establish "separate and independent negotiating teams" to "re-inject competition" between the hospitals-essentially making the hospitals compete independently for business.

ENH, which also owns Evanston Hospital and Glenview Hospital, said in a press release that it was "thrilled" by the FTC's decision. ENH contended during testimony that its price hikes were necessary because Highland Park Hospital had been underselling for years. Also, the merger improved quality of care at Highland Park resulting in higher demand for the hospital's services.
But the FTC disagreed. In her opinion in the ruling, Deborah Platt Majoras, FTC chairman for this case, said, "[t]here is no dispute that ENH substantially raised its prices shortly after the merging parties consummated the transaction." The merger allowed ENH to leverage unfairly higher rates from insurance companies," she said.
Together, the three hospitals form a triangle in the North Shore serving Evanston, Glencoe, Wilmette, Winnetka, Kenilworth, Highland Park and Lake Forest. There are nine other nearby hospitals but none in the ENH triangle. Combined, the three hospitals have approximately 700 beds and offer primary and secondary care.
The FTC's decision carries weight nationally because as hospitals merge, this case will be viewed as precedent.
"It remains to be seen whether federal court embraces what the FTC ruled," said Chul Pak, an attorney with Wilson Sonsini Goodrich and Rosati in New York, who argued for a full divestiture on behalf of the FTC. He said the FTC ruled against divestiture partly because the hospitals have been together for seven years and because hospitals provide an essential role in the community.
"Time will tell," Pak said of the ruling's effectiveness. "It was not the optimal outcome, but the remedy helps level the bargaining field so insurers can get lower prices. It was certainly the intent [of the FTC] to lower costs."
ENH has 30 days to provide the FTC with a plan to describe how Highland Park Hospital will act independently or appeal the ruling. ENH said no decision has been made about an appeal.
The complaint council's economist, Deborah Haas-Wilson, used data that included all Illinois patients from 1998 through 2002 and found that ENH increased its per day average net prices by 48 percent for all patients. And the FTC also found ENH and Highland Park were well aware of their new bargaining power. The FTC cited in its opinion a report written by Highland Park Hospital President and CEO, Ronald Spaeth, who wrote in 1999 before the merger, "it would be real tough for any of the Fortune 40 companies in this area whose CEOs either use this place [Highland Park] or that place [Evanston and Glenbrook] to walk from Evanston, Highland Park or Glenbrook [hospitals] and 1700 of their doctors."
The initial complaint was issued by the FTC in February 2004 and alleged that following the acquisition, ENH was able to raise its prices charged to health insurers far above price increases of other hospitals as a result of the transaction.
In October 2005, Chief Administrative Law Judge Stephen J. McGuire issued an initial decision and order, ruling in favor of the FTC, and ordering ENH to sell Highland Park within 180 days. According to McGuire's decision, ENH's acquisition of Highland Park resulted in "substantially lessened competition" and higher prices for insurers and healthcare consumers.